Mick Weinstein The Week's Best Stock Blogs

As equity markets tumbled to new lows, former Fed Chairman Alan Greenspan conceded before a Congressional committee Thursday that mistakes of his while at the helm have, at the very least, exacerbated the current financial crisis. In the Maestro's own words: "those of us who have looked to the self-interest of lending institutions to protect shareholders' equity... are in a state of shocked disbelief."

Many market bloggers found Greenspan's disbelief, well... hard to believe - and recalled this scene from Casablanca when Claude Rains' Captain Renault "discovers" there is gambling going on at Rick's Place.

One such blogger, David Gaffen at MarketBeat, focused on interest rate policy under "Easy Alan" : "One would say it puts lie to Mr. Greenspan's steady trumpeting of de-regulation, particularly in the area of derivatives. The Maestro dismissed the idea that he was responsible, but the truth lies not in the stars, Dear Alan, but in ourselves, and it's more than likely that Mr. Greenspan's easy credit policies pursued in the wake of the technology wreck and as the housing bubble developed were more responsible than any lack of regulatory efforts."

Tanta at Calculated Risk took another tack: "Greenspan has been criticized for keeping rates too low... however his far larger mistake was opposing oversight when many people were pointing out the extremely lax lending standards. So I was happy today that the [Congressional] Q&A focused on this issue... Greenspan is now saying what many of us were warning about several years ago."

Tim Iacono, author of the prescient blog 'The Mess that Greenspan Made' found the whole environment remarkable: "the most striking aspect of today's gathering... was the tone of it all. My how things have changed... the one-time "second most powerful man in the world" looked feeble and a bit unsure of himself as, time and again, he would attempt circuitous "non-answers" to direct questions only to be interrupted and pressed for a more succinct reply. Elected officials no longer just sit and listen with mouths agape. Like when Toto pulled back the curtain on the Wizard of Oz, all the magic is gone."

Paul Kedrosky in Tina Brown's new site, The Daily Beast: "Greenspan has driven home how badly he messed up in presiding over the creation of the largest credit bubble in U.S. history. He missed its causes, its expansion, and even possible fixes at every stage... In watching the carnage that he helped create, instead of sounding contrite, Greenspan acts more like a bystander at a slow-motion car-crash."

Greenspan explained that he and other top economists didn't foresee the massive housing downturn because "we're not smart enough as people. We just cannot see events that far in advance." 

Dean Baker at Talking Points Memo rejects the popular meme that Greenspan was a "prisoner of his free market ideology": "If Greenspan didn't think the Wall Street crew would rip off their shareholders for every last penny, then he was not a worthy disciple of Ayn Rand... all the people who lent Bear Stearns, Lehman, AIG, Goldman and the rest money felt secure because they thought the government would come to the rescue at the end of the day if the hotshots messed up big time. With the exception of Lehman Brothers, these folks were right."

Steve Goldstein at MarketWatch finds it "hard to believe Greenspan's disbelief," and wins Paul Krugman's praise for this line: "For a man who was once remarkably hard to decipher, Alan Greenspan is now as clear as an empty Lehman Brothers office."

John Gapper at FT.com doesn't understand Greenspan's professed disappointment in the auto-regulatory power of self-interest: "Although the current crisis is severe, there have been repeated instances of self-interest at banks being insufficient to stop prevent foolish lending and credit losses. If Mr Greenspan thought otherwise, that means he was ignoring a lot of historical evidence. It is very strange."

David Bernstein at The Volokh Conspiracy: "Greenspan explained that even after he realized there was a bubble, he never expected housing prices to decline so dramatically, because we had never had a nationwide decline in housing prices in the past. I'd heard Greenspan say this before, but I'm surprised he wasn't embarrassed to repeat it. Didn't he ever read a mutual fund prospectus ("past performance does not guarantee future results"). More to the point, given that the level of increase in housing prices, both nationwide and in specific markets, was unprecedented, why would anyone sensible look to precedent in determining to what extent prices may fall?"

Floyd Norris at NYT.com: "Mr. Greenspan is right on one thing. The "whole intellectual edifice" collapsed. But he is wrong to blame it solely on the wrong inputs... What was missing was a regulator who understood markets, rather than worshiped them."

Mike Shedlock: "It is fitting that the "Maestro" is humbled before Congress. Unfortunately it is for the wrong thing... The solution is not more regulation. The solution to this financial crisis is a return to free market principles, abandonment of GSEs, rating agencies that get paid by buyers of bonds rather than sellers of bonds, the phasing out of fractional reserve lending, and a return to a strong currency backed by gold."

Michael Steinberg believes Greenspan's enlightenment should be extended to bond trading, for the sake of individual investors: "Now is the time when retail investors should be focused on income, and the wild price swings in bonds present great opportunities. Unfortunately, this world remains very opaque."